Funds acquired by the firm through retaining earnings have no cost because there are no dividend or interest payments associated with them,and no flotation costs are required to raise them,but capital raised by selling new common shares or bonds does have a cost.

Question

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Retained earnings have a cost, which is the opportunity cost of not distributing those earnings to shareholders, who could invest them elsewhere for a return. This is often referred to as the cost of equity.

Funds Acquired by the Firm Through Retaining Earnings Have No